The Excise Department will strictly inspect land transactions in highly popular tourist destinations in the South where tax evasion is said to be widespread.
According to a senior official, property sales in Krabi, Koh Samui and Phuket have mushroomed in recent years, skyrocketing land prices in some areas 100-fold from a decade ago.
This is mainly because property developers are attempting to accumulate land banks to develop hotels, resorts and residential projects to serve high demand from foreigners, who use Thai nominees, the source said. Foreign nationals are not allowed to own land in Thailand.
A corporation selling land to a nominee that then resells to another company saves both companies a lot of taxes.
The withholding tax rate for land sales between an individual and a company is calculated based on the appraisal value of the Land Department, while a company-to-company sale is based on the transaction amount, which is usually higher than the appraisal prices.
“Any transactions executed through nominees violate the Excise Act,” said the source.
The department assigned Regional Excise Bureau 11, which covers eight southern provinces, to upgrade their IT systems to be more efficient at inspecting and tracing nominee transactions.
The bureau plans to inspect each transaction that indicates an unusual transfer, such as between three parties, and compare the sale price with the state land appraisal. If a transaction is proven illegal, the bureau can reassess the tax payment.
Amy Koh, shop manager of property consultant Engel & Volkers, said tax evasion is usually committed by small or new property firms because listed developers are audited. The withholding tax rate for land sales between individual and company is calculated based on the appraised value of the Land Department while transactions between companies are based on actual deal prices, which could be much higher than the appraised prices.
Land prices in Phuket reached 200 million baht a rai or 500,000 baht a square wah on Patong Beach in 2008, but appraisals by the Treasury and Lands Departments were much lower.
Land transactions between corporations include transfer fees, special business tax and corporate income tax, which involves step-up rates. The transfer fee and special business tax are based on appraisal prices, but the corporate income tax is based on net profit.
Stricter scrutiny on actual sales prices between companies would help prevent the department’s revenue loss.